Standing Beside Alaska's Non-Profits

Points to Consider When Founding a Nonprofit Organization

Regardless of the data that suggests that Alaska already has more nonprofits per capita than any other state, The Foraker Group continues to receive calls daily from individuals throughout the state wanting to form a new organization. We always encourage each nonprofit founder to first identify existing organizations with similar missions to see whether another organization will adopt their great ideas, but often they insist their only option is to form a new nonprofit. If we fail to help them find another logical provider for the service, and they understand funding, we will help with the next steps of determining the structure and developing the legal documents for incorporation and tax status.

Just last week, a woman who already serves on two nonprofit boards told me that she, “and some of my friends are starting a new nonprofit.” They wanted our help. I asked how they planned to pay for this and she gave the answer we hear more than any other: “we’ll get grants.” This is a problematic answer from Foraker’s perspective as it is unrealistic for groups with no history of success or reputation of being a sound business investment to attract significant funding. Additionally, success of an organization goes beyond short-term and long-term financial resources and must address the other elements of a successful business including attention to a focused mission and human capacity. For these reasons, Foraker has developed a checklist for developing a new nonprofit.

The checklist, in short, is the development of a business plan that includes:

1. Creating or revising the funding strategy.
2. Recruiting a diversified board and capable staff.
3. Going through the necessary legal process to incorporate.

The Foraker Group developed a nonprofit business planning template and process when we determined that all the other business planning templates on the market did not meet the demands of a nonprofit environment or culture. If followed, founders can develop the discipline to take their passion into building a functioning organization. We emphasize the need for this detailed planning as the first step for anyone with a nonprofit dream.

1. Creating or revising the funding strategy.
Part of a business plan is a realistic projection of income. We suggest external research on existing organizations with similar missions, identification of potential customers/clients, and how similar organizations are structured. At the same time, we make sure they understand funding options. “Who will want to fund your dream?” Or more to the point, “Who cares?” and “What difference will your organization make in the community?” Many founders assume that there are angels waiting to fund their great idea. While angels exist, they are not abundant. That is why founders should learn the realities of nonprofit funding prior to assuming any financial liability for their new effort.

My sister-in-law called a year ago with a “great idea” for a new organization. She wanted to start an organization that would publish a faith-based magazine for women. Her funding strategy was that she could find corporate and foundation support and most important, support from various churches. I explained the four basic income streams for nonprofit organizations, including earned income, charitable giving, grants, and events. I also explained the only sustainable streams were earned income and charitable gifts.

When I explained that corporations and foundations rarely (very rarely) provide funds for faith based nonprofits, and how even if they would consider funding, they would only do so if assured, with a business plan, that their initial investment could be sustained. In Foraker Group trainings, we emphasize that events are “good friend-raisers, but not dependable for funding operations.” Then I explained that most churches have to struggle to maintain their own support and may even see a new nonprofit as competition.

Reviewing the options, she realized that the best options were to either ask friends for donations or develop an earned income strategy. In reality, those are the two options for most new nonprofits. If we could identify more angels, or where money grows on trees, we would be glad to share this knowledge. But in over thirty years of searching, I can’t see the trees, (nor the forests), and the angels are almost always existing friends or friends of friends. That said, founders beat the odds and sometimes defy all logic. However, we will continue to provide the advice that founders should partner with existing nonprofits in lieu of creating new ones whenever possible, and should understand nonprofit funding before spending thousands of dollars to incorporate.

2. Recruiting a diversified board and capable staff.
One also needs to determine the organization’s structure, most importantly, how the organization will be governed. Nonprofit organizations are unique in that they can be formed by and staffed by volunteers. Eventually, however, nonprofits need a committed staff. Mature nonprofit organizations have a well-defined partnership between the board and the staff that specifies board and staff roles that are hopefully built on trust and competence.

Founders can serve on the board, or founders can serve as staff. While there is no legal restriction, we suggest that founders not serve on the board if they also are on the staff as conflicts of interest are often a problem when staff, or close family members of staff serve on the board. Founding boards should strive to recruit board members that have complimentary skills and relationships that enhance the original board’s capacity. The stronger and more balanced the board, the more sustainable the organization. Boards must have a minimum of three people to incorporate in the State of Alaska and organizations that depend on charitable giving should strive to have no fewer than nine. While it is useful to have input from consumers on boards, conflicts of interest are often more troublesome for boards dominated by consumers. Determining a workable board and staff structure is not as easy as finding a few friends. It requires study and strategic thinking if the mission is to be achieved.

3. Going through the necessary legal process to incorporate.
The legal process of incorporation is the last item on the checklist. The steps include:

  • Articles of Incorporation
  • Bylaws
  • Tax Status

There are many issues to address during the development of a nonprofit organization, and understanding them is critical before creating a new nonprofit. My sister-in-law did listen: she created a business plan, she revised her funding strategy, and she recruited a very diverse and engaged board with passion for the mission. She is serving as their first CEO. A few members of the community – her friends – invested in this dream and in June, her first magazine will be published. She sold enough advertising so that with magazine sales, and with a few donations, the organization has a good chance to survive.

Passion alone can often be enough to make a founder’s dream happen, but if a founder follows a few basic guidelines, the dream may be able to survive the founder.